Standing Committee F

[Mr. Joe Benton in the Chair]

Finance Bill

(Except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134 and schedules 1, 5 and 38) - Clause 3 - Duty on beverages made with spirits to be at spirits rate

Amendment proposed [this day]: No. 1, in page 2, line 18, leave out subsection (1) and insert— 
'(1) The Treasury shall lay before Parliament on or before 31st December 2002 a report on the operation of duties on alcoholic beverages that shall include— 
 (a) information about the market in lower-strength alcoholic beverages; 
 (b) an estimate of the impact on consumption of the rates of duty on beer, cider, wine and spirits in comparison with the rates of duty on those beverages falling within the provisions of section 1(9) of the Alcoholic Liquor Duties Act 1979; 
 (c) a summary of any representations received by the Treasury after the day on which this Act is passed relating to section 1(9) of the Alcoholic Liquor Duties Act 1979.'.
 Question again proposed, That the amendment be made.

Joe Benton: I remind the Committee that with this we are taking amendment No. 2, in line 22, leave out subsection (2).

Michael Jack: I begin by welcoming you to the Chair, Mr. Benton. You were absent this morning for the beginning of our proceedings, but tribute was paid to you in your absence. It is nice to be able to do that in your presence. I also acknowledge the Economic Secretary, who is with us this afternoon—a change in Front Bench talents. I have no doubt that we shall enjoy what she has to say.
 Before the luncheon interval, we were debating the amendments tabled by my hon. Friend the Member for Christchurch (Mr. Chope). I wish to address the remainder of my remarks to amendment No. 1, which properly asks for more information to be provided to Parliament about the taxation of alcoholic beverages. Just before the break, I was discussing what appears to be a new taxation principle employed by the Treasury and by Customs and Excise of considering what the market will bear. The explanatory notes indicate that the duty on alcopops was increased because it was thought that, as a proportion of the retail price, it was too low for a spirit-based designer drink. The explanation would have been a little more straightforward if the notes had simply said that the Treasury had decided that it was time that the taxation on that spirit-based drink fell into line with other spirits. However, they did not say that but described a new way of determining policy. 
 The explanation has flushed out some inconsistencies in the way that alcohol per se is 
 taxed. For interest's sake, I asked for the assistance of the Library of the House to draw up a comparison on a common denominator basis of the way in which different alcoholic beverages are taxed. The Library converted tax into the common denominator of pounds per litre of alcohol. We find that spirits will bear a duty of £19.56 per litre after the measure in the clause comes into play. However, wine with 15 per cent. alcohol content bears a duty of £10.31 per litre of alcohol. A less alcoholic wine by volume bears a tax of £15.47, and beer bears a tax of £11.89. There appears to be a delicious inconsistency in the way that alcohol is taxed, when compared on a like-for-like basis. The amendment gives Treasury Ministers an opportunity to address the inconsistencies. 
 Paragraph 6 of the explanatory notes refers to the medical implications of a large consumption of alcopops, but the tax on beer will, effectively, be nearly half the now-enhanced rate of taxation on alcopops. If there were genuinely a health case to be made, why not have an equivalence in the tax on alcohol? If we are to understand the logic behind the measure, we need an explanation, and amendment No. 1 provides an opportunity to get one. I look forward to hearing Ministers explain both why there are different rates and why the numbers are what they are, which will allow us to understand the inconsistency in the way in which alcoholic beverages are taxed in this country.

Chris Grayling: I echo the remarks welcoming you to the Chair this afternoon, Mr. Benton.
 I raised a number of issues in the discussion of the cider amendment. I particularly want to pick up on the comments made this morning in an intervention by the hon. Member for Glasgow, Maryhill (Ann McKechin). She referred to the clear fact that the existence of alcopops has generated substantial new drinking among, in particular, young women, and has led to problems of alcoholism. I do not dispute her comments, but in making them she highlighted an important issue that underlies the inadequacy of the step that the Government are taking. 
 My hon. Friend the Member for Christchurch rightly said that if steps of the kind set out in clause 3 are to be taken, they need to be taken on the back of a proper assessment of the situation. The comments by the hon. Member for Glasgow, Maryhill highlighted the fact that that has not been done. In my experience, women do not originate antisocial behaviour of the kind that is a bane to so many residents of town centres. This is not an exclusive situation, but generally speaking it is not women who go around vandalising property, putting graffiti on walls and smashing up cars late at night, but young men. The hon. Lady unwittingly highlighted the fact that clause 3 will not address the problems of excessive drinking in young men. It will, perhaps, discourage alcoholism in young women, but it will not deal with antisocial behaviour. 
 If there is to be a proper assessment, it should reflect the point made by my hon. Friend the Member for Christchurch that young men tend to drink beers and ciders, particularly when they are underage, far more than alcopops. A broad-ranging assessment of the 
 differing impacts of different kinds of alcohol and the differing impacts of differing levels of duty on different kinds of alcohol would lead the Government to come forward with a coherent strategy that said, ''We have a problem in our society. It is not helped by aspects of the excise system, which we therefore need to modify.'' That would give them credible authority to take the steps that they hope to take, but there is nothing in the one-off clause that enables them to do so. 
 The reference to the chief medical officer's report can be interpreted as an alibi for a revenue-raising measure, which, as my hon. Friend the Member for Christchurch has said, will damage parts of the industry. The Government must do better. They must come up with a clear assessment of the impact of alcohol on antisocial behaviour and put forward proposals, which can be openly and clearly debated, about the way in which the excise system can be structured to help tackle that problem. That argument is not addressed by clause 3. The amendment put forward by my hon. Friend is one way in which to begin a proper debate about the differing impact of excise levels on different kinds of alcohol, and it deserves the Committee's support.

Mark Hoban: I also welcome you to the Chair for this afternoon's proceedings, Mr. Benton.
 In his amendment, my hon. Friend the Member for Christchurch has addressed the problem with clause 3. When we discussed clause 2 this morning, there was an issue about whether cider should be subject to a higher tax because it has a greater alcohol content. When one compares the contents of that debate with clause 3, there appears to be a discrepancy in the Government's case. It is not clear whether the measure is being brought forward for health reasons to reduce binge drinking, in which case the argument for reducing the duty on cider is not appropriate, or simply to raise revenue. 
 The explanatory notes state that there has been an increase in demand for alcopops in recent years. If that price increase is to be believed, demand has increased off the back of steep price increases, although I note that my right hon. Friend the Member for Fylde (Mr. Jack) referred to the ACNielsen report, which indicates that the price increase during the past couple of years has been only 20p. I wonder whether the Government are targeting those drinks simply as an easy revenue raiser, knowing that they are popular and in demand and that, even with an increased price, the yield on the tax will continue to be very sound and will benefit the Exchequer. Consequently, it may be misleading to try to dress up the tax increase as though it were on health grounds, given the earlier comments on cider. 
 We must also consider what will happen if the amendment is rejected and the tax increase goes through. I fear that more young people, rather than using the relatively low alcohol alcopop drinks, will switch straight to drinking shots—neat spirits. Certainly, what I believe are called sidekicks are available in off-licences. They are shot measures of 
 spirits, which will get people more drunk more quickly, and possibly more cheaply, than alcopops. We must look at the health debate in the wider context of what else is available to young people to get them drunk quickly, cheaply and, from their perspective, efficiently. 
 The amendment gives the Committee and the House time to pause and think about why the measure has been introduced and about how we can address antisocial behaviour and binge drinking in a more considered and mature fashion, looking at all rates of duty on alcohol, not simply those on cider or, as in this case, alcopops in isolation.

Paul Boateng: May I join colleagues in welcoming you to the Chair, Mr. Benton? You have arrived in the middle of an informative and interesting debate, with important contributions from both sides. I hope to give you a flavour of it in the course of my response.
 Spirits-based coolers are also known as alcopops, premium-packaged spirits, ready-to-drinks, designer drinks, pre-mixed spirit drinks or, as we have now learned from Opposition Members, FABs—I suspect that that will be a new term for you, Mr. Benton, although perhaps you move in more esoteric circles than I—which means flavoured alcoholic beverages. Call me old-fashioned, but I prefer spirits-based coolers. [Interruption.] It has a ring of truth to it, because it is spirits-based coolers that we are taxing. FABs are a much broader category of drink. No doubt we shall come to recipes in due course, because several hon. Members have referred to them. 
 Typically, the drinks are simply a mixture of a spirit—usually vodka or white rum—a fruit juice or flavouring and water. In terms of their alcoholic content they have been taxed at around the same level as beer. In terms of duty as a proportion of retail price, they have become during the past two years the most lightly taxed of all alcoholic drinks. 
 While you were away, Mr. Benton, we were given a very interesting insight into the club—the Conservative club—of the hon. Member for Christchurch. That is a very interesting place. Apparently, the people in it are young. [Interruption.] Well, at least, young at heart. We are also told that they are fashionable. According to the hon. Gentleman, we can deduce that by reference to the fact that they drink something called WKD. One does not have to be Ali G to know that WKD, when spoken, is pronounced ''wicked''. I see a look of bemusement on the face of the hon. Member for Christchurch. That is surprising. Given the picture that he painted of his Conservative club, I would have thought that it was full of ageing Ali Gs. I cannot help responding positively to the murmured suggestion by my hon. Friend the Member for Enfield, North (Joan Ryan) that, were it to be allowable under standing orders, we might visit the hon. Gentleman's club. 
 We are an inclusive Government but we have not yet reached the stage at which fiscal policy is judged by the mores of the Christchurch Conservative club.

Hon. Members: Shame!

John Bercow: I am very grateful to the Financial Secretary for giving way. Would he care to note as he develops his remarks that one of the reasons for the state of permanent happiness in the Christchurch Conservative club, to which my hon. Friend the Member for Christchurch earlier referred, is the fact that my hon. Friend secured on 7 June—as the hon. Member for Kingston and Surbiton (Mr. Davey) will know to his pain—a swing from the Liberal Democrats of no less than 11.7 per cent.? That is why they are so happy; that is why they keep drinking.

Paul Boateng: I fear that any Conservative club in a state of permanent happiness ought to be investigated by Customs and Excise, but not in relation to any alcoholic beverage.
 Be that as it may, we were referred to the drink pronounced ''wicked'', and I am happy to meet the challenge that the hon. Member for Christchurch laid down. In referring us to WKD, he suggested that the Government were putting a stop to innovation in the alcohol industry, and that the measure would in some way inhibit innovation and development of the industry, and the jobs that go with that. That would be a serious charge, and one to be taken seriously, if it had any substance. My attention is drawn to revealing comments made by Karen Salters, the marketing manager of Beverage Brands, the producer of WKD; we should pay some attention to what she has to say. She says that established and well supported brands will be able to withstand the inevitable price increase, and that Beverage Brands is committed to strengthening the coolers category and developing it further through innovation, marketing and business-building with the trade. That was what she said on 26 April in light of the Chancellor's Budget. 
 I do not think that anyone could argue that the measure will be an inhibitor on the business and will cost jobs. I also do not think that one can get away with suggesting that the Government have done something unheard of in raising tax on a particular category of drinks, or have acted improperly. The treatment of spirits-based coolers has remained largely unchanged since 1996, when the right hon. and learned Member for Rushcliffe (Mr. Clarke) made an announcement—without prior consultation, I believe. The right hon. Member for Fylde is in a much better position than I to know what was in the mind of the right hon. and learned Member for Rushcliffe at the time because he was his constant companion in the Treasury. The right hon. and learned Member for Rushcliffe said that 
''the tax on alcoholic soft drinks will be increased by over 40 per cent.,''—
 he was proud of that; it was a boast that was made when he made his Budget statement in 1996, and I think that I can recollect it— 
''which will put up the price by between 7p or 8p a bottle. That increase will meet public concern about the attraction of the ''alcopops'' for under-age drinkers.''—[Official Report, 26 November 1996; Vol. 286, c. 168.]
 That is what he said. There was no consultation and he simply made the announcement. He may have had 
 good reason to keep those drinks in the bucket category of low-alcohol wines. At that time they accounted for only a tiny fraction of the alcoholic drinks market and many had a non-spirits alcoholic base. That is why I think—I am not just being old fashioned—that the term ''spirits-based coolers'' is better. Such drinks have developed over the years. They started with one called Hooch, which was a major cause for concern because its lemon taste attracted the younger drinker. The hon. Member for Buckingham (Mr. Bercow) may recollect it and perhaps he turned to that drink when he left the women's committee of Lambeth council—[Interruption.]—or possibly in 1992, indeed. 
 The industry developed and became more sophisticated with more attractive drinks. That sector of the market has changed out of all recognition since the time of the right hon. and learned Member for Rushcliffe. Times change and we must consider the matter in light of prevailing circumstances. We asked ourselves whether that concessionary treatment should continue and after careful consideration it became clear that such drinks no longer deserved to be treated as a niche product and that their concessionary treatment had become anomalous. There is nothing odd, unusual or underhand about that. That part of the drinks market has been the fastest growing for the past three or four years and by some reckoning it is ahead of cider as the fourth largest drinks category after beer, wine and ordinary spirits. So we decided that they should no longer be taxed at the same rate as low-alcohol wines but at the same rate as spirits. 
 Turning to the point made by the hon. Member for Arundel and South Downs (Mr. Flight) before lunch, we decided that vodka and orange or gin and tonic mixed at the bar should be subject to the same tax as vodka and orange or gin and tonic pre-mixed in a bottle. What is wrong with that? Is it odd or unusual? I am addressing my comment primarily to the hon. Member for Kingston and Surbiton because I suspect that Conservative Members are beyond hope. They will do what they will do, but I know that the hon. Gentleman tries to apply his mind rationally to these issues and that he does not come to the Committee with preconceived notions—

John Bercow: No, he is a Liberal.

Paul Boateng: That is not fair. The hon. Member for Kingston and Surbiton is a Liberal, but that does not have to carry all the connotations that I fear the hon. Member for Buckingham implied.
 If the hon. Member for Kingston and Surbiton and his hon. Friend the Member for Torridge and West Devon (Mr. Burnett) apply their minds, perhaps they can see the rationale for the provision.

John Burnett: We welcome you to the Chair, Mr. Benton. It is a pleasure to serve under you again.
 The Financial Secretary asserted that these drinks are the most lightly taxed of any alcoholic beverage. Will he elaborate on that to justify his proposition?

Paul Boateng: It does not take much to demonstrate that. If the hon. Gentleman looks at the figures in the
 Red Book he will see that those drinks are not taxed as much as spirits, beer and cider. They are taxed on the basis of an obscure bucket category that was created, understandably, to protect the niche market of British-made wines—the Wincarnises of this world, if hon. Members can recollect that far back. The burden of taxation on them was low.
 One of the key issues for consideration was whether the coolers market could support the removal of the concession. Our evidence showed that it could. There is nothing improper about considering whether a market can bear the burden of taxation. Between 1999 and 2001, the consumption of coolers more than doubled, and during that period, the average pub price of a bottle of coolers rose by 60p per bottle. Some hon. Members with peerages suggested that the increase was closer to 20p, but I have to tell them that the figure of 60p comes directly from an analysis of market research data by the Office for National Statistics. Customs has discussed that figure with the industry and I am confident that agreement will be reached to clear up confusion on the part of Opposition Members.

Christopher Chope: Will the Financial Secretary make that documentation available to Committee members straight away so that we have a chance to consider it while we are still sitting?

Paul Boateng: I am not sure that I can do that, but I shall certainly write to the hon. Gentleman and make reference to the ONS report and the market survey. He can share that with colleagues.

Peter Luff: If the price has already gone up by 60p a bottle, and binge drinking continues at those price levels, how will putting up tax help to prevent binge drinking?

Paul Boateng: I am coming to that. It is a mistake for the hon. Gentleman to try to explain our action on tax as a response solely to the phenomenon of binge drinking. We have never presented that argument.

John Bercow: The Financial Secretary is expatiating on the purported rationality of his argument. I do not cavil at that, but may I ask him what assessment he has made of the apparent incongruity between the relatively low excise duty on high alcohol content wine and the relatively high duty on lower alcohol content wine? My right hon. Friend the Member for Fylde referred to that incongruity a few moments ago.

Paul Boateng: I shall not be drawn into such discussions now, but I hope that we have an opportunity later to discuss wines and their respective proportion of tax. Now, we are dealing specifically with spirits-based coolers.
 Recent evidence strongly suggests that the sector enjoys sustainable levels of growth and very low demand elasticity, but even so, the assumptions that we made about growth and demand in our revenue projections were cautious. One has but to listen to the firm of market analysts WestLB Panmure, which said: 
''We do not believe that the higher tax and higher prices will materially affect demand because we do not believe that demand is price sensitive but led more by brand preference.''
 People are attracted by brands, such as WKD, Reef, Barcardi Breezer and Smirnoff Ice. As Opposition Members have said, they are fashion drinks. People's decisions in relation to fashion are not often based on price elasticity. They pay for a name—surprising but true.

Chris Grayling: Can the Financial Secretary confirm that he believes that the duty increase will not affect demand in the slightest? He has quoted WestLB Panmure, which believes that it will not have a significant impact, so does he accept that the reference to medical factors in paragraph 6 of the explanatory notes on clause 3 is irrelevant? If the increase has no impact on demand, it will not affect levels of drinking or the behaviour of those who drink too much. Therefore, this is entirely a revenue-raising measure rather than a social measure.

Paul Boateng: I shall come to the hon. Gentleman's argument about whether the measure is revenue raising or health motivated. It is a mixture of both. The hon. Gentleman's specific point goes back to the pertinent point made in an earlier debate, I think by the right hon. Member for Fylde, in relation to particular categories. I have not seen any figures showing what impact prices have on, for instance, young women or young men. If people rely on handouts from mum and dad or on a Saturday job, a price increase may limit their drinking. I have not seen the detailed analysis of that.
 What we and the analysts in the industry say is that demand in this area is not price-sensitive but led more by brand preference. The amendments seek to maintain, perhaps indefinitely, the concessionary treatment of these drinks. That is the crux of the debate. Opposition Members apparently believe that the concession should continue. They have made some interesting arguments as to why it should. The hon. Member for Christchurch spoke about the damage that the measure would do to the growth of the sector. I hope that I have dealt with that argument by quoting the view of the marketing manager at Beverage Brands. The reality is that pubs and other retailers are generally responding to the change with an increase of 10p a bottle, in line with our estimates. That does not seem to be having a marked impact on demand. 
 The hon. Gentleman also suggested that there was confusion in the industry about whether certain drinks are to be treated as spirits. He made the fairly bizarre suggestion that Customs is setting itself up as an approver of recipes. Customs does not approve recipes. It gives assessments of duty liabilities on drinks that have been produced. That is its role. 
 The only people who know and approve the recipes for these drinks are the manufacturers themselves: it is a commercial decision that they take. They know whether their drinks are based on spirits. The leading brands, which account for most of the market, know that their drinks are spirits. That is precisely how they 
 market them. If any manufacturer needs advice or guidance from Customs on the proper duty classification for its drink, it can contact Customs. Many have done so over the years. They did so when the right hon. Member for Fylde was in office and they do so now, and they receive a binding classification. 
 A number of hon. Members referred to the health impact—a significant issue, particularly in relation to certain sections of the community. My hon. Friend the Member for Glasgow, Maryhill referred to the undoubted socially damaging impact on young women, who increasingly binge drink. My hon. Friend the Member for Cardiff, West (Kevin Brennan) likewise expressed concerns about that. 
 However, we do not consider the primary function of alcohol duties to be the control of alcohol consumption. Most people drink sensibly, and in general the problems of alcohol misuse are best tackled by a combination of social legislation, public policy and trade self-regulation. Reference has been made to the work of the Portman Group. That stands close examination as an excellent example of the way in which an industry seeks to promote socially responsible drinking, and I think that we would all commend it. However, when we are considering whether this type of drink should retain favourable or concessionary treatment, we cannot ignore the fact that, in a report that raised concerns about increased alcohol consumption among young people, the chief medical officer singled out designer drinks. We could not pretend that he had not singled out those drinks in terms of problematic drinking among young people, to return to the point that the hon. Member for Epsom and Ewell (Chris Grayling) made on cider. Of course we have in mind what the chief medical officer said, which was: 
''Recent years have, in particular, seen younger drinkers attracted to new ranges of 'designer' drinks with a relatively high alcohol content.''
 The right hon. Member for Fylde, among others, commented on the structure of the UK duty regime and competition in the drinks market. Some hon. Members came very close to arguing for what sounded like a system of unitary taxation, where drinks would be taxed according to their alcohol content. We had a rather good debate a few weeks ago on the Floor of the House, in which the right hon. Gentleman shared with us an insight into his contribution to thought at the Treasury. He told us of an idea that was then radical, which he had shared with Treasury officials and his ministerial colleagues. It did not make much headway at the time, but he nevertheless shared it with us. Perhaps during his time at the Treasury he was a great proponent of unitary taxation, although we would not have known it. I would not be made privy to it, because we are never told what our predecessors have tried to do—I am sure with good reason.

Michael Jack: Before the Financial Secretary ascribes to me every policy area of the previous Government, successful or otherwise, may I remind him that my principal area of responsibility was, in effect, direct, not indirect taxation? However, like him, I then accepted the collective responsibility of dealing with those policies.
 I take the opportunity to ask the Financial Secretary a question. He has suggested so far that alcopops are able, in his judgment, to absorb a higher level of taxation. We are getting an insight into how Treasury thinking on setting taxation levels in that sector operates. Currently, 30 per cent. of the price of beer is taxed, 51 per cent. of that of wine and 61 per cent. of that of spirits. If either of the categories with a lower level shows an increase in sales, will it also have its card marked by the Financial Secretary's approach?

Paul Boateng: The approach of the right hon. Gentleman, who takes a keen interest in those matters, is intriguing. He attempts to suggest that whether a particular drink could bear an increase in taxation should not be taken into account, that it is unfair to do that, or that if we do that for one drink—one that is, after all, in receipt of a concessionary regime—it opens up opportunities to tax others still further. That is simply not the case. I refer him to paragraph 5.88 in the Red Book, to which I referred earlier, which says that our aim is
''a fairer balance in the burden of taxation falling on different alcoholic drinks and different types of drink-producers.''
 That is what we have done here. There is nothing underhand or suspicious about it. The right hon. Gentleman cannot jump from the fact that we have taken this particular action on spirit-based coolers to say that, next in line, we have our eyes on beer or spirits. 
 I had an exchange with the hon. Member for Buckingham on our respective records on beer. He has promised to write to me about that, and I look forward to it, but I should like to share that discussion with a wider audience. I do not think that, when one examines how the Labour Government have related to the spirits and beer industries, one can truly suggest that we have imposed an unfair burden on them or been anything other than understanding of and sympathetic to the issues and concerns that affect them. 
Several hon. Members rose—

Paul Boateng: A surplus of riches. I give way to the hon. Member for Arundel and South Downs.

Howard Flight: Will the Financial Secretary be kind enough to clarify my understanding of the clause? I am not entirely clear whether low-alcohol alcopops would end up being subject to the same tax rate as whisky, gin and other spirits. Earlier, I made the gin and tonic point: if an alcopop is one measure of vodka and three measures of fruit juice, the spirits rate should be applied to the spirit element. It would be unfair to tax a low-alcohol alcopop at the same rate as whisky by comparing them volume for volume. For example, wine typically has a 12 per cent. alcohol content, and if an alcopop has a 5 per cent. alcohol content it is nonsense to treat it in that way. Does the clause, as it stands, seek simply to tax the alcohol element and not the rest of the drink?

Paul Boateng: As is often the case, the hon. Gentleman makes a fair point along a proper line of inquiry. I refer him to my comments about the anomalous imposition of the banded made-wine structure on those kinds of drinks. Under the old
 banded made-wine structure, a spirits drink of 4.1 per cent. bore the same duty as one of 5.5 per cent. As the hon. Gentleman has indicated, that does not make much sense bearing in mind the varied nature of such drinks. In clause 3, we have sought to tax according to the nature of the alcohol that a particular drink contains.

John Burnett: Will the Financial Secretary give way?

Paul Boateng: No; I want to finish the point.
 Clause 3 will be much fairer than the old system because spirits duty will increase in a linear fashion with the alcohol content, meaning that the lower the alcohol content, the lower the duty. Under the new spirits structure, a producer will be able to save 27p per litre by producing at the bottom, rather than the top, of the range covered by the old duty band of 4 to 5.5 per cent. That is obviously relevant to the point made by the chief medical officer. The unfortunate antisocial and health-damaging consequences of binge drinking are less likely if people choose a lower alcohol drink because of a price differential.

John Burnett: I ask the Financial Secretary to justify his earlier assertion that those drinks are the most lightly taxed of any alcoholic beverage. He has just adumbrated the principle behind the tax: the lower the alcohol content of any drink sold across a bar or in an off-licence, the lower the duty. Is that the principle behind the measure?

Paul Boateng: The principle behind the measure is that it is not right that that particular form of spirits-based alcoholic cooler should remain in the anomalous category of banded made wine. That particular sort of drink was unreasonably lightly taxed as a proportion of retail price, and this is much fairer. Spirits duty increases in a linear fashion, as I have said, with the increase in alcoholic content.

Kevin Brennan: I apologise for being late, Mr. Benton, and am grateful to my hon. Friend the Financial Secretary for giving way. Is not a better analogy a drink such as Baileys Irish Cream, which is a mix of cream and spirits? It is taxed as a spirit. Is not that a more appropriate analogy for a fruit and spirit mix such as the one that we are discussing?

Paul Boateng: I shall avoid that one, because I do not want to get drawn into it. It would be pleasant to be drawn into a vat of Baileys; one can drown in a butt of malmsey wine or in a butt of Baileys—I know which I would prefer.
 I do not intend to be drawn into that discussion. I believe that the measure is fair and that we have met the requirements of the principles that we laid down as the basis for taxation in this area. It is important to recognise that what we have done is completely consistent with what our predecessors—of all political parties—have done. I go back to the days of a former Chief Secretary to the Treasury, subsequently Chancellor of the Exchequer and First Lord of the Treasury, the former right hon. Member for Huntingdon, John Major, when he said in 1989: 
''The existing duty system allows the Chancellor the opportunity to take account of changes in the economic conditions affecting each of the drinks industries in setting duty rates.''
 In 1990, the right hon. Member for South-West Norfolk (Mrs. Shephard), when she was Minister of State at the Treasury, said: 
''we must not lose sight of the fact that the basic purpose of alcoholic drinks duties . . . is to raise revenue for the Government . . . To achieve that, successive Governments have set out to collect revenue from various drinks rather than from alcohol as such . . . To link duties on the basis of alcoholic strength would limit the Chancellor's room for manoeuvre and produce a major upheaval in the market place.''—[Official Report, 20 December 1990; Vol. 183, c. 573.]
 That is the Conservative party's track record. 
 Hon. Members have said that we should have consulted the industry more closely so that we could tell them what we were planning to do and get their views before making the change. That is a Damascene change of attitude on the part of the Opposition. I do not recall their taking that view when they were in government or rushing to consult the taxpayer before they introduced a tax hike. I cannot think of any Government who have ever seen fit to constrain themselves in such a way when taking basic decisions on alcohol duty rates. We saw no value in consultation. We were confident in our decision and saw no reason to delay it, just as we saw no need to consult on our decision to freeze the other alcohol duties and to cut the rate for cider. 
 There is something else that I know will interest the right hon. Member for Fylde, when he actually looks at the figures. I am mindful that the 10-day period that we allowed for the industry to change its systems was used by some producers to engage in some serious forestalling. That is another reason why I think that an extended period of consultation would have been both unwise and unnecessary. I can make available to Committee members who would like to see it an interesting graph that shows what occurred when the right hon. and learned Member for Rushcliffe announced in 1995 a duty increase that was to come into effect from 1 January. What we then saw was massive trade forestalling before the sector dipped and then renewed its steady growth again. There would have been real dangers in my submission for us to have adopted the rather unusual principle that the Opposition seem to have latched on to during their period in opposition. 
 We have listened carefully to what right hon. and hon. Members have said, and we understand where they are coming from on the issue, but the measure supports the steps that we have consistently taken to deliver a fairer burden of taxation on different alcoholic drinks and their producers. The clause ensures that the drinks carry their fair share of duty at a rate that probably reflects the nature of the alcohol that they contain. As such, I commend it to the Committee and urge Members to reject the amendments.

Michael Jack: I have listened with care to some very good points that the Financial Secretary made in response to the inquiring lines that we put forward. I would say to him that at times there were dangers when, via the means of a question from the Opposition, he began to impute a policy to us. I
 think that we have every right, and I speak from the Back and not the Front Benches, to probe the Government about the logic and thought that lie behind that move.
 The Financial Secretary showed an unusual degree of sensitivity when I probed him about the percentage of tax that those products will now bear as a proportion of their price in the future. We have had an interesting insight into some of the thinking behind Government policy on alcohol taxation. When the Government set out to raise money, it is not always easy to justify it in an entirely acceptable fashion.

John Bercow: I am grateful to my right hon. Friend for giving way. Does he agree that the Financial Secretary's response on the subject of the proposed amendments should be treated with certain circumspection in the light of the not-very-auspicious debut to the issue of challenges that the Financial Secretary has so far made? Is my right hon. Friend aware that, on 8 May, in consideration in Committee on the Floor of the House, the Financial Secretary—he seems very proud of it because he referred to it a few moments ago—challenged me to identify any period in which there had been a freeze on beer duties in two Budgets—[Interruption.]—Oh yes; it is on the record. The Financial Secretary cannot cavil at my recalling the record. Is my right hon. Friend pleased to be reminded that, between 1985 and 1988, there was indeed a freeze on beer duty? It confounds the Financial Secretary and it does not encourage confidence in the veracity of his judgments.

Michael Jack: I am always pleased to be reminded of useful information, and my hon. Friend has given some more to the Committee. I think that it also bears out the fact that, when we were in government, we did consult on spirits. For example, we consulted the Scotch whisky industry about matters relating to its tax.
 I want to return to what the amendment is about. It reflects the desire for information to explain Government policy. I do not think that the Government should be upset about providing that information. I fear that the amendment may well be lost, but I would say to the Financial Secretary that anything that helps us to understand better why the Government do what they do is a perfectly sensible and reasonable thing to request, and that is what the amendment is designed to do.

Christopher Chope: May I, too, welcome you to the Chair, Mr. Benton? My right hon. Friend the Member for Fylde has just given a good reason why we should vote for the amendment. In summing up for the Government, the Financial Secretary addressed some of the issues. He conceded that, although the Chancellor said in his Budget statement that at no material time had there ever been a justification for the concession, there has been a justification for the concession in the Government's eyes for quite a long time, so that situation has now changed. At least that is a minor concession.
 The Financial Secretary has also been much more moderate in his views about the impact of the measure on binge drinking, and I am grateful to him for that. 
 However, he has not answered the question that the industry is asking: where spirit coolers compete directly with bottles of Budweiser and Beck's in clubs, why is it fair to increase the tax on one by 60 per cent. while leaving the tax on the other unaltered? They are all fashionable drinks whose alcohol content ranges from 4.5 to 5.5 per cent. Information on that and a wider debate would be facilitated by amendment No. 1. 
 Question put:—
The Committee divided: Ayes 9, Noes 16.

Question accordingly negatived. 
 The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill. 
 Question agreed to. 
 Clause 3 ordered to stand part of the Bill.

Clause 5 - Acquisition of information etc.

Question proposed, That the clause stand part of the Bill.

Michael Jack: This is an interesting clause. Lest anybody think that a conflict of interest arises here, I remind the Committee that I am chairman of an agricultural consultancy.
 Biodiesel is an interesting agricultural development, and I welcome the Government's decision to give it concessionary treatment in relation to hydrocarbon oil duties. However, I want to take a moment or two to explore with the Financial Secretary the Government's thinking behind the revised level of duty. 
 A little while ago, I received some correspondence from Cargill plc, not only outlining the potential for biodiesel in the United Kingdom, but making some important points about the factors that would affect the company's investment decisions in this area. I say that against the background of a European directive that sets targets for member states' use of biodiesel. Interestingly, I learned from the university of Aberdeen's helpful environmental information note, published on 13 September 1999, that in Germany 
''Sales of bio-diesel, a renewable fuel from oilseed rape, increased to 100,000 tonnes in 1998. 800 German petrol stations now sell that 
green fuel. Sales have doubled since 1996 when motorists purchased 50,000 tonnes, available from 500 outlets.''
 Biodiesel comprises 1 per cent. of German diesel sales. 
 I gave that example because in Germany biodiesel is not subject to duty, so there is an outright price advantage for that environmentally friendly form of diesel. The same note states that, in addition to the benefits of diesel in terms of carbon dioxide production and its contribution to reducing greenhouse gases, biodiesel produces sulphur-free emissions, which is a better performance than conventional fuel. There is every reason for the Government to encourage in clause 5 further production of biodiesel, but the success—albeit out of date—described in that note, reveals that a more advantageous tax regime than that proposed by the Government had a remarkable effect in encouraging the use of biodiesel in Germany, certainly for road transport use. 
 Let us examine the position in the United Kingdom. Cargill advocates that in agricultural terms it would be a good idea to do better than at present because we have a surplus of wheat production. That surplus is lower grade wheat, which is often exported and requires export restitutions, costing this country money. As a result and because of the changes in agriculture, a high of some 543,000 hectares of oilseed rape—the source of the raw material for biodiesel—in the 1998–99 planting season has fallen to 395,000 hectares in the last full year for which I have figures. Cargill argues that the agricultural potential is clear and that the amount of oilseed rape grown could be increased substantially to satisfy demand for biodiesel by using some of the land that is currently used for surplus production of wheat to the 1998–99 level of harvested oilseed rape. Cargill states: 
''With this scenario in mind, and given a domestic food industry oil need of about 500,000 tonnes, there would be approximately 450,000 tonnes of rapeseed oil available for biodiesel. The conversion of that oil to rape methyl ester would provide 450,000 tonnes of biodiesel for road transport fuel, sufficient to make a meaningful difference to greenhouse gas emissions and to air quality.''
 That is powerful advocacy for better use of land and environmental benefits, but the economics of the Government's proposals get in the way. In a further letter to me, Cargill acknowledges the Government's concession in hydrocarbon duty in clause 5 and states: 
''Whilst we welcome this move, we have constantly stressed that this rate will not be sufficient to encourage companies like Cargill to produce biodiesel in earnest in the UK on a scale that will realise the full environmental and economic potential. In fact''—
 this is important— 
''this duty rate will only serve to encourage the production of low quality biodiesel generated from recycled vegetable oil.''
 That is important because the Government, in the shape of the Prime Minister, recently held a working group meeting at Downing street with Sir Donald Curry, the author of the report of the commission on the future of farming. As the Financial Secretary knows, part of Sir Donald's report put particular 
 emphasis on innovation in UK agriculture. It laid stress on the development of new crops and new ways of using land. By and large, the Government have welcomed the Curry report. I should have thought that they would want to embrace, with considerable enthusiasm, the opportunity to deflect land producing an unwanted wheat surplus into something that would clearly produce considerable environmental gains and be to the significant advantage of UK agriculture, at a time when grain prices, as the Financial Secretary knows, have reached an all-time low. 
 Returning to Cargill, its letter says that 
''we would prefer duty rates linked to the world price of vegetable oil, but have been informed by HM Treasury that such a formula is too complex. Therefore a further duty rate reduction of 15p, giving an overall rate of 10p per litre, would be sufficient to ensure that a commercially viable biodiesel industry could develop in the UK.''
 It concludes with a very important point from a major world player in the field of agri-investment, saying: 
''Cargill has a myriad of possible investment opportunities worldwide, and will move our investment elsewhere if we do not receive an indication of the Government's intention to further reduce the duty rate.''
 In a way, it is disappointing to have a company that is quite clearly enthusiastic for the development of a biodiesel industry in the UK pointing out that, in its judgment, the concessionary rate referred to in clause 5 is not yet sufficient to encourage the investment in the infrastructure needed to give a boost of the type to which I referred in the context of Germany. 
 I hope that the Financial Secretary can share with us in some detail the discussion that the Government have no doubt had on this occasion with the industry and the thinking that led them to select the rate of duty that clause 5 invites us to approve. If a company such as Cargill is willing to make an investment but feels that the rates are not yet sufficiently advantageous to encourage it so to do, that has implications not only for its investment but for UK agriculture and the Government's backing of the Curry commission report.

John Burnett: Will the right hon. Gentleman address the sufficiency or otherwise of rape available for purchase by companies such as Cargill, and the impact of the integrated administration and control system regime on rape production in the UK agricultural sector?

Michael Jack: The point that I made earlier, to which Cargill referred, was that going back to 1998 and 1999 planting levels of 543,000 hectares brings us, if my memory serves me correctly, within the envelope allowed by the controls in the common agricultural policy on the overall planting levels of oilseed rape.
 I appreciate that there are different regional planting amounts, but I do not want to get too entrapped in a discussion of agricultural policy when the major focus of my remarks is the inducement to invest in capacity and to take advantage of what the UK agricultural sector clearly could produce—enough rapeseed oil to meet immediate demand. I do not think that Cargill is saying in any way that there is a shortage, although the hon. Gentleman rightly draws our attention to the fact that there is currently a 
 constraint, under CAP terms, on the overall planting of oilseed rape. 
 I hope that the Financial Secretary can share with those of us who support the project the reasons why the Treasury cannot go further at this stage and realise the investment that companies such as Cargill and, no doubt, others would like to put into it.

John Burnett: The Liberal Democrats welcome the clause too. I am particularly interested in the comments of the right hon. Gentleman, who has, as usual, illustrated graphically and intelligently the problems that Cargill faces. We want, as I am sure do the Government, greater investment in the manufacture, distribution and sale of a product that is environmentally benign and part of a worthwhile provision in the Bill.
 I refer the Financial Secretary to ordinary diesel that can be purchased. Can he tell the Committee about the Government's views on diesel duty? We have a high rate on diesel compared with other European countries, although it has been proven for some years that diesel engines produce lower emissions, they are more durable and one generally gets more miles per gallon from them. Diesel should be encouraged. What do the Government have to say about that in formulating their taxation proposals on diesel?

Christopher Chope: I, too, look forward to hearing what the Financial Secretary has to say. Although the clause is a step in the right direction, paragraph 7.30 of the Red Book states:
''There are already signs that this initiative is stimulating activity, including investment in production facilities and plans by one major supermarket chain to use biodiesel in lorries.''
 My right hon. Friend the Member for Fylde is on the ball; it is clear that the users of biodiesel do not think that there will be a sufficient financial incentive to switch their vehicles fully to biodiesel. The headline figure of a 20p per litre reduction in fuel duty for biodiesel sounds attractive, but the reality is that it is impossible to put 100 per cent. biodiesel into a vehicle; it must be diluted so that only 5 per cent. per litre of diesel is biodiesel. The effective reduction is therefore only 1p per litre, which means that the cost of biodiesel will be higher because the cost of its production is 2p per litre higher than for standard diesel. That is why the Freight Transport Association says that the reduction will make no impact whatever. Its manager of engineering policy, Geoff Day, says: 
''The idea of a 20p per litre reduction in fuel duty for vehicles that may be using many thousands of litres per year is obviously very attractive. However, as no engine or fuel injection equipment manufacturer will approve of pure biodiesel''
 it will not make much impact in practice. 
 If every hon. Member is enthusiastic about the benefits to the environment and agriculture that can flow from the development of biodiesel, we challenge the Government on why they are limiting its reduction in duty. Why are they not going further?

Paul Boateng: One of the great advantages of a Committee such as this is that it enables all hon. Members to share experiences of their other lives to better inform our debates—[Interruption]—better to inform. The hon. Member for Buckingham is being
 pedantic because both phrases are fit for the purpose. We heard an example from the right hon. Member for Fylde, who has a detailed knowledge of the industry and shared with us the particular views of Cargill, to which I shall come in a minute.
 Indeed, the hon. Member for Torridge and West Devon brings knowledge of farming, which is valuable, to the Committee. 
 In bringing the measure forward, we have obviously consulted and worked closely with the Department for Environment, Food and Rural Affairs because we are well aware of the measure's implications for the farming industry and are anxious to get it right in order that it may benefit that industry and contribute towards our international commitments in relation to Kyoto and climate change. 
 I would caution the hon. Member for Torridge and West Devon about becoming too enthusiastic about diesel, an area in which I was particularly interested when I came into this job. I have considered it in greater detail than at any time since I was a member of the Environment Committee many years ago under the distinguished chairmanship of the then right hon. Member for Hornsey and Wood Green, Sir Hugh Rossi, whom a number of Government and Opposition Members will remember. We looked at some of those issues on the Environment Committee and I revisited them when I came into this job. 
 At first blush, diesel has the superficial attractions referred to by the hon. Member for Torridge and West Devon because it has some advantages on carbon dioxide emissions. The difficulty is that it has a worse impact on local air quality than petrol. Diesel presents problems for those—there will be many of us in Committee—who have particular concerns about environmental degradation and the impact of road usage on, for instance, children in schools. It is superficially attractive because it produces reduced carbon dioxide emissions and it is undoubtedly more efficient given the sort of engines that are now being produced, but the problem is its environmental impact on local air quality. 
 That is why we made the policy decision to tax both petrol and diesel at the same rate. The Liberal Democrat party may have come to a different view; it is an area in which one must make a balanced judgment. The view that we took, take and adhere to is that petrol and diesel should be treated alike, which is why we have approached the matter in this way. Clause 5 will introduce a reduced rate of excise duty on biodiesel used as a road fuel to permit the United Kingdom to benefit from its reduced greenhouse gas emissions. The purpose is to help offset the high cost of biodiesel compared with mineral-based diesel. 
 We launched the Green Fuel Challenge in November 2000 to promote the development of practical alternative transport fuels with environmental benefits, and we invited industry to come forward with practical proposals. In response to the proposals that we received, a series of duty cuts for alternative fuels was announced in the 2001 Budget, including a reduction in duty on biodiesel, which 
 clause 5 will enact. The reduction will apply to both main types of biodiesel: rape methyl ester—RME—produced from rapeseed oil; and recovered vegetable oil—RVO—produced from waste vegetable oils. In terms of usage, the rate that will apply to biodiesel used as in-road fuel will be 25.82p per litre, which is 20p per litre below the rate for ultra-low sulphur diesel. There will also be a provision for duty paid on pure biodiesel used in certain off-road vehicles and other specified motor engines to be reclaimed. The overall result is that the same amount of duty will be paid on biodiesel as would be paid on road diesel—around 3p per litre. The Committee will discuss road diesel in due course.

Christopher Chope: Will the Financial Secretary address the issue that biodiesel has to be diluted?

Paul Boateng: Yes, I will.
 I should add that the duty incentive on biodiesel used as a road fuel will apply both to pure biodiesel and to biodiesel blended with mineral heavy oil. In the latter case, the incentive will apply in direct proportion to the amount of biodiesel in the blend. The reduced rate will come into effect on Royal Assent, provided that we have European agreement to our request for a derogation from the mineral oils structures directive. Agreement is expected shortly. 
 The right hon. Member for Fylde asked whether such an incentive was enough. The good news is that there are already signs that the duty incentive is stimulating activity, including investment and production facilities. As the hon. Member for Christchurch has been good enough to recognise, a major supermarket plans to run its delivery fleet on biodiesel, and we look forward to that announcement. 
 Some members of the British Association for Bio Fuels and Oils—Cargill is one of them—want a greater differential for biodiesel of up to 35p per litre. We have to make a judgment on that. The Government's climate change programme emphasises the need for cost-effective measures to tackle climate change to ensure that there is no disproportionate cost to society as a whole. We decided that a 20p per litre duty cut relative to ULSD was sufficient recognition of the environmental benefits from biodiesel and provided best value for money. 
 The Committee will want to give the Government some credit for adopting this form of fiscal instrument to promote environmental good. The hon. Member for Christchurch said that we have taken a few steps down the road. I hesitate to draw his attention to the fact that I was not aware that, when he and his right hon. and hon. Friends had governance of this nation's affairs, they took any steps at all. Therefore, there should be some recognition of the fact that the Government are going in the right direction as opposed to going backwards.

Christopher Chope: Perhaps the Financial Secretary can inform Committee members what the state of the biodiesel market was six years ago.

Paul Boateng: No. We must encourage, develop and stimulate a market. It always makes me laugh in one sense, because there was a time when Opposition Members were constantly giving us strictures—they do not do it so much now—about the values of the market. Yet it is this Government who have made the market work for the environment, and we should have some recognition for that. I shall not go on and on about it, but we should get some recognition for seeking, through the Green Fuel Challenge, to engage with the industry. No one pretends that it is easy, and there are some fine-balanced judgments to be made. We have drawn upon the industry, and it has been generous in proffering information, advice and assistance, which we have used to inform our balanced judgment. We have decided that 20p per litre is right.
 The revenues and costs of the measure will depend on the extent to which the duty incentive encourages the production and use of biodiesel. Obviously, we will watch that closely—I take the point made by the right hon. Member for Fylde. We must ensure that the measure has the desired effect, and we must monitor it carefully. We estimate that the initial cost will be about £10 million a year, which is money well worth spending because the incentive will make a real contribution to the environment. 
Several hon. Members rose—

Paul Boateng: I had concluded my remarks, but I am always interested in observations from hon. Members.

Howard Flight: Does the Financial Secretary agree that the main revolution in creating a market for environmentally friendly fuels was pioneered by the previous Conservative Government when they introduced a substantial duty encouragement of lead-free petrol? Would he be kind enough to address the specific point made by my hon. Friend the Member for Christchurch about dilution? Will 1p be sufficient, or is it the case that for dilution the equivalent of a 2p cut in duty is necessary?

Paul Boateng: Our judgment is that the cut that we have made will achieve the desired result; no further cut is required. We think that the signs are good and promising but, as I have said, we shall monitor the situation closely.

Michael Jack: I very much welcome the Financial Secretary's comments, particularly his assurance that the Government will monitor the situation closely. As he said, it is a matter of judgment. Commercial interests will seek the best investment opportunity and, therefore, will press for a lower rate than the Government judge is necessary, and the Government must strike a balance between their environmental targets and what they think they can afford to do. However, I wish to press the Financial Secretary a bit further.
 The assurance that the Government will keep the matter under review is the sort of standard throw-away line that all Ministers use because they think that it will remove a line of criticism. Can the Financial Secretary assure us that a paragraph about reviewing progress will be included in the next pre-Budget report, which will be issued towards the end of this year, so 
 that we might formally be informed of the Treasury's approach to the development? I appreciate that all taxes are kept under review, but it would be nice to have something more tangible as the result of the Financial Secretary's useful words of assurance. 
 The Financial Secretary, with his obvious, in-depth knowledge of diesel engine technology, will be aware of the environmental improvements that are the result of the second generation of common rail engines, which are now coming into greater use throughout Europe. If he is interested in helping the Government to achieve and perhaps even exceed their goals for the reduction of carbon dioxide and other noxious emissions from motor vehicle engines, he should consider the strong case for encouraging diesel cars and the even stronger case for fuelling them with biodiesel, for the reasons that I gave earlier. It would be helpful to have a written review, and the pre-Budget report would be an excellent vehicle, without creating a new one, for putting the information in the public domain.

Paul Boateng: I would not claim for myself an in-depth knowledge of the technology, but I am lucky to work with several men and women who have such knowledge. As the right hon. Gentleman well knows, in this job one often meets—not only in the context of photo calls with various inanimate pieces of technology but generally—people who are real enthusiasts in that field. That is especially true in relation to biofuels, where enthusiasm sometimes borders on obsession. The right hon. Gentleman well knows that phenomenon. I have learnt much about that subject, and am very interested in it.
 In the course of my experience in this Committee when in opposition, I learned that Ministers must not, under any circumstances, for one moment allow themselves to be lulled, above party-political consensus, into believing that this is the place to write future pre-Budget reports, or enter into commitments to publish documents of any sort. I do not intend to be lulled by the right hon. Gentleman's blandishments into such a false sense of security. However, I can assure him that, as I think he can sense, such is the interest in that field and in the environment generally, shown not only by this House, in questions, but by the Environmental Audit Committee and others, that the process of review on environmental taxation has of its very nature to be a live one. 
 There is no hidden agenda here. We all want the same thing: to see the challenging Kyoto targets met. It is in our interests to ensure that we keep the matter under review, to be as open as possible about the processes that make up that review and to invite comment and contribution from as wide a range of informed people as possible. That is the nature of our intention to keep those matters under review. The formula has progressed a little since the right hon. Gentleman's day and now has a meaning that, I fancy, it might not have had when he uttered those self-same words. 
 Question put and agreed to. 
 Clause 5 ordered to stand part of the Bill. 
 Schedule 2 agreed to.

Clause 6 - Regulating trade in rebated heavy oil etc

Christopher Chope: I was expecting the Financial Secretary to speak to the clause first, because I assumed that he would wish to counter the criticism made by the Federation of Petroleum Suppliers, the trade association for the oil distribution industry in the United Kingdom and the Republic of Ireland. It represents the majority of distributors in the UK, from the small family businesses that form the greater part of it to the distribution arms of some of the major oil companies.
 The FPS met Customs and Excise to discuss its proposals for tackling misuse of rebated fuels before submitting comments on the consultation document in February. The whole of the industry, I am told, is united in its view that the Customs and Excise proposal 
''will not be effective in tackling the problem but simply add to the burdens on industry, being particularly onerous for small businesses, which make up the majority of distributors.''
 The FPS is 
''very disappointed that the Treasury has gone ahead with its proposed approval scheme for distributors and has ameliorated its original proposal only very slightly in the light of''
 the comments that it has made. It says: 
''The Government made a commitment not to place excessive burdens on small businesses by way of regulation. With the majority of distributors beings small businesses, the scheme to limit misuse of rebated fuels repudiates this commitment, our view being supported by''
 none other than 
''the DTI's Small Business Service.''
 Those are serious allegations being made against the Government. I hope that the Financial Secretary has an answer to them, because another point that the FPS makes is that the simple way to eliminate fraud is to lower duty on road fuels. It also says that the present scheme will be unworkable and unfair to distributors, and that it does not address the problems in Northern Ireland. We know from the National Audit Office report and other information that the problem of fraud and duty avoidance in Ireland, and particularly Northern Ireland, is by far the largest proportion of the overall problem.

Paul Boateng: I certainly was intending to speak to the clause, and I am delighted to have caught your eye, Mr. Benton. I prefaced my intention to speak to it in my earlier reference to concerns about red diesel. The matter is something that would give any responsible person charged with consideration of the issues a great deal to think about, and certainly something to say.
 I am bound to say that, having heard the hon. Member for Christchurch, I had rather hoped to have a more constructive and supportive response in tackling what is a very real problem: serious and increasing fraud involving the misuse of rebated fuel oils. All parties must take that issue seriously. I know that many right hon. and hon. Members sitting on 
 Select Committees that have an interest in the matter certainly take it seriously, and we do as a Government. 
 In the calendar year 2000, mainland diesel fraud accounted for 4 per cent. of the market and cost at least £450 million. We estimate that, with no action, that fraud will have doubled by 2005–06. At present, there is little or no control over the distribution network for red diesel and kerosene after they pass the duty point. That enables fraudsters to purchase those fuels as if they were to be used for approved purposes and then misuse them as road fuel with relatively little fear of detection. Customs has increased its volume of intelligence-based investigations into oils fraud, and we have seen a tenfold improvement in detection rates as a result. I commend Customs and Excise for its vigour, but the fact of the matter is that we lack the basic information on the distribution of rebated fuels that would help us to target our resources in Customs and Excise investigations more effectively. 
 Unless we significantly tighten the control regime for rebated fuels, diesel fraud will continue to grow rapidly, with serious implications for revenues, the competitiveness of legitimate retailers and hauliers and for the environment. All parties have urged us to tackle that problem. That is why the comprehensive strategy announced in the Budget is designed to reverse the growth in oils fraud, reduce the illicit market share to 2 per cent. and secure £550 million against the pre-Budget revenue baseline by 2004–05. Instead of filling the fraudsters' pockets, that money will assist in implementing our public policy proposals.

Michael Jack: On Second Reading, I raised with the Financial Secretary the line of figures in table A.1 on page 155 of the Red Book. I wonder whether he could share with the Committee some more detail as to how the calculations were done to increase the oil fraud strategy revenues to which he refers. This year, the figure is £100 million. It goes up to £290 million, and then a colossal £550 million. Could he explain how the build-up is accounted for?

Paul Boateng: I shall happily do that, but first I shall address the points made by the hon. Member for Christchurch. I am grateful to the right hon. Member for Fylde for raising that issue again. He did raise it on the Floor of the House and I will deal with it in detail in a moment.
 The Government are determined to introduce to distributors of rebated fuels a system of approval that I do not believe is disproportionately burdensome on the industry. The system will require distributors to tell us about the supplies that they make and to take reasonable steps to check that their supplies of rebated fuels are made only to customers who intend to put them to an approved use. Only those trading in these fuels will need to be approved, and end users of the oils will not be affected. The scheme will, therefore, radically improve our control over the distribution of rebated fuels and will provide a regular flow of information about their distribution and use, which will help Customs to improve its intelligence, its ability 
 to identify potential misuse and its ability to target the use of anti-fraud resources effectively. 
 We consulted the industry closely on the introduction of the scheme. The hon. Member for Christchurch said ''You can target it, but you don't accept everything that it says.'' No, we do not accept everything that it says. We consulted it, and we met it some of the way. Some of what it had to say had force and we accepted the arguments; other arguments we could not accept. I have placed in the House copies of the regulatory impact assessment and a summary of the responses received to the consultation. I do not believe that, if the hon. Gentleman reflects on those, he will find our response wanting. 
 Is the estimated revenue yield from the strategy realistic? The answer is yes but I would say that, wouldn't I? The reason why I say that the estimate is based on sound analysis and cautious assumptions is that, in 2000, mainland diesel fraud accounted for 4 per cent. of the market and cost at least £450 million. We estimated that, with no action on our part, the fraud would double by 2005–06. That was the basis of the revenue projections in the pre-Budget report. The strategy announced in the Budget will radically enhance our capacity to control the oils distribution network, making it far harder for fraudsters to get hold of rebated fuels and misuse them. We estimate that this strategy will reduce the market share of illicit fuel to 2 per cent. by 2005–06. It is the impact of this estimate against the previous revenue base line that has been scored in the Budget projections. Hence the saving of £550 million by 2005.

Howard Flight: Given the extent of red diesel fraud, is it mainly of a local nature or is there evidence of large-scale, organised crime behind it?

Paul Boateng: There is large-scale, organised crime behind it in Northern Ireland. The links with terrorism are real, and we should not ignore them for one moment. There are also some indications that it is spreading to the mainland, so we must take the matter seriously.
 There is a clear and pressing need to improve customs controls over the distribution of the network and to persuade distributors to exercise more control over who they supply the fuels to. As I say, we have consulted industry on the matter and we shall issue a discussion document on the details of the scheme, because it is in nobody's interests that it should not work effectively or should be so burdensome that the various stakeholders do not feel they have ownership of it. Customs will hold further meetings with representatives from the industry as we introduce the draft regulations. That will provide an opportunity to clarify the trade's requirements and the cost involved. 
 I hope that, with that assurance, right hon. and hon. Members on both sides of the Committee will feel that they can give the clause a fair wind.

Christopher Chope: I am grateful to the Financial Secretary for what he has said, but can he assure us that the proposals to penalise the distributors, which many people find particularly offensive because the distributors have no control over the use to which the fuel is put once it has been sold, and the penalty
 regime will also be the subject of a consultation document? Will the attitude of the Financial Secretary's Department be to deal with the matter with a light touch, rather than to make enemies of responsible small businesses?

Paul Boateng: The Department's attitude is to deal with the matter effectively. The penalties will be proportionate to the extent of the negligence.
 Question put and agreed to. 
 Clause 6 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Mr. Sutcliffe.] 
 Adjourned accordingly at fifteen minutes past Six o'clock till Thursday 16 May at half-past Nine o'clock.